What will Europe’s power sector look like in 2020?


By 2020, will renewables be fully integrated? Will the much-anticipated nuclear renaissance be underway, or will gas and coal still be dominant?

John Horner, Director, E for Energy Consulting

It has to be expected that the EU will continue to follow its Energy Road Map 2050, having fallen just short of its 2020 goals for installed renewable capacity.

The cost to the taxpayers and companies operating in the EU has been enormous. Average prices of electricity across Europe have made Germany’s 2012 tariffs look cheap. The cost of power is increasingly becoming a major issue and this is being exploited by anti-EU politicians.

The uncertainty of renewable energy and its low utilization factors have caused the EU to invest heavily in electricity storage research over the past few years, but so far no breakthrough has been achieved. The must-run status of renewables, allied to their irregularity, has put enormous strain on system operators’ ability to maintain security of supply. Brownouts have become increasingly common and all new domestic appliances have inboard batteries to maintain a steady current to the control units.

Retirement of older coal stations and earlier generations of nuclear coupled with the inability of renewables to support system stability has highlighted the need for reactive power from new resources. There has been an increase in gas engines installed at the periphery of transmission systems and, where gas is not available, diesel engines.

Although the EU has promoted greater connectivity of national systems in the belief that this would deliver a consistent level of electricity supply from renewables, there has been strong resistance from local residents to plans for new power lines.

As a consequence, there is much interest in direct current undersea and riverbed power lines, but little or no progress. A body of research is building up to prove that interstate transmission systems would not provide the panacea that the EU believes for the shortcomings of nuclear.

Another area of development has been in shale gas exploitation. Russia’s de facto annexation of parts of eastern Ukraine and the EU/US failure to respond has resulted in Member States scrambling to exploit shale gas in the hope of replacing EU reliance on Russian gas. Electorates in member states have been given the choice between continuing dependence on Russian gas and the political constraints this forces, and the development of shale gas and reintroduction of nuclear power generation.

One success story for renewables has been the successful proving of the economics and utilization of tidal lagoons where there is a high tidal range.

Jacob Klimstra, Energy & Engine Consultant

It all depends. If the gas price stays high and the coal price remains low, the power sector will squeeze as many gigawatthours as possible from their existing coal plants. As long as the price of carbon emissions will not increase to some €80 per tonne, no European player will invest in carbon capture and sequestration. Unless the economy takes the unexpected large leap forward, politicians will not take any effort to increase the price of carbon.

European countries will certainly try to install more renewable generating capacity based on wind and solar. They will feel the heavily disturbing effect on their grids of this action as soon as more than 25 per cent of demand is covered by solar and wind.

Since large-scale storage to smooth intermittency for time spans over a few days is prohibitively costly, the sector will start to integrate heat and electricity use. Excess electricity from renewables that threatens to destabilise the grid will be used to generate heat. District heating systems and cogeneration systems are ideal instruments for this integration. Heat can be stored easily in hot water reservoirs. Research into advanced phase-change materials will intensify ion attempts to offer even more energy dense heat storage. Power to gas has been rejected as not economic.

In addition, much more flexible generation capacity is needed. A remuneration system for fast-responding capacity will be embedded in the electricity market to compensate investors. In many countries, base load will gradually disappear. By 2020, demand side management will not play a big role in Europe since the balancing capacity of smart domestic appliances is too low. Industrial customers show less interest in demand side management and for commercial customers the financial benefit is too small.

Harald Thaler, Energy & Power Industry Director, Europe, Frost & Sullivan

Europe’s fuel mix in 2020 will see substantial reductions in conventional generation as aging coal plants are decommissioned and gas plants continue to have low running hours.

Nuclear’s role will also decline, driven by Germany’s phase-out. Renewable energy, on the other hand, will continue to grow strongly as Europe pursues its goal of having 20 per cent of final energy consumption met by renewables. Excluding hydro, these are forecast to represent 22 per cent of total EU power output in 2020, according to the IEA’s central scenario, up from 12 per cent in 2011.

Utilities have been losing money on gas generation as a result of renewables increasingly being able to meet profitable peak demand. Additionally, gas generation has been negatively impacted by cheap coal prices as a result of rising North American coal exports. There will be a strong impetus towards the creation of capacity markets as a way of providing sufficient incentives for thermal backup capacity being made available. Capacity markets will have become widespread by 2020.

Utilities are also working on new business models. In order to move away from their traditional reliance on generation from coal, gas and nuclear, utilities will become more diversified by 2020, focusing more strongly on renewable energy. Also, in addition to actual traditional power sales, new downstream opportunities will gain in importance. These will include investments in distributed generation, energy storage, electric vehicles infrastructure and power flow optimization.

Europe in 2020 will continue to have higher energy bills than those in other regions, in particular North America. Shale gas developments will remain slow, and shale is not expected to contribute more than a tiny share to total gas demand. North American LNG exports are also not expected to have a significant impact on prices in Europe, unlike Asia where the effect will be more profound.

Nicolas Kraus, Policy Officer, The European Power Plant Suppliers Association

Projecting the future of Europe’s energy system inevitably involves some uncertainty. However, given that – unlike other fast-paced technology sectors – energy sector investments are long-term, we can make some assumptions about the future.

Completing the internal market by 2014 and developing interconnections are EU priorities. Current efforts allow us reasonably to presume that in 2020 we will see a more integrated European energy grid. The EU is also working on streamlining permitting procedures for interconnectors through the Projects of Common Interest.

This enhanced interconnectivity will facilitate the integration of renewable energy sources into the system. This is a growing challenge for supply and grid stability: as thermal power plants increasingly provide flexible backup, involving low running hours (often at part-load) and are required to run beyond their design limits, the most efficient plants do not operate to their full potential. This means that, in the near future, more efficient and flexible thermal power plants will be needed. In 2020 we will see the beginning of a new generation of thermal power plants able to cope with the changing needs of the system.

Following the EU Council conclusions of March 2014, the importance of electricity prices must be emphasized. To ensure affordable energy prices in years to come, we will not be able to push a specific energy source at any cost. A balanced energy mix in which all energy sources can contribute with their specific added value to the overall system will emerge. This will be the rational solution to the challenge of minimizing the environmental impact of power generation whilst keeping competitive energy prices and a reliable energy supply. In this environment, the role of thermal power generation will still be what it is today: the backbone of the EU electricity system.

Dennis Volk, Electricity Analyst, Gas, Coal & Power Markets, IEA

Over the past 30 years many international electricity markets have been transformed from centralized to more competitive markets. This was to the benefit of reduced government involvement and public sector spending, increased private sector engagement as well as dynamic and reliable adaptation even to unexpectedly changing conditions.

With only marginal power demand growth, cross-border market integration and the replacement of aging supply assets are most important in Europe. At the same time the development and integration of domestic renewable generation technologies will have to proceed to decarbonize and diversify the supply side. Further, innovations could open new pathways and new technologies could bring educated and empowered consumers closer to the reality of dynamic power systems. Finally, accurate and more competitive network service provision and use will have to support European power system developments in a co-ordinated manner across all market participants.

Today, Europe is at the crossroads to successfully develop the power sector in accordance with its needs and options. The future will show whether national governments are to retain their current roles in shaping the future of multiple European power systems or if one truly European power system emerges. At the same time, governments’ choices will define how much competition will be left for delivering reliable, affordable and sustainable electricity services.

For the moment many competitive approaches and cross-border developments are blocked not only by national thinking but also by the return of the idea of centralized decision-making with high levels of governmental intervention. With current policies being applied towards 2020, Europe’s electricity future seems bleak, with unintended consequences for economies and societies becoming the rule rather than the exception. As governments across the globe seek to improve power sector governance, possible developments in Europe will also undermine Europe’s role as a global lighthouse for doing innovative and sustainable electricity business across borders. The time is now for European governments to mutually develop more sophisticated frameworks which result in accurately priced, demanded and delivered electricity services required across borders. This would be to the benefit of economic growth, social well-being and sustainability.

Peter Ramm, Chief Executive, Europe, Advanced Power (UK) Ltd

Consumption of electricity has been rising in Europe and worldwide for many decades and with only short interruptions. In Europe, the crisis which began in 2008 led to a decline in electricity consumption, but it is very likely that growth will return, albeit at a low rate.

The European power industry of 2020 will therefore produce and sell more electricity than today, and it is safe to say that a larger share of this will come from renewable technologies and a smaller share from nuclear power. Most renewable generation is non-dispatchable, and this either leads to a much lower level of reliability – a politically unlikely proposition – or we continue to need a large and possibly growing fleet of dispatchable, fossil fuel-fired power stations. It may not be politically or environmentally desirable, but it is unavoidable.

Today, electricity markets have ‘energy-only’ pricing. Capacity and reliability are not explicitly priced which, if nothing is done, will bring very volatile electricity prices. We either accept such volatility (as we do with other commodities) or provide various incentives, or at least signals to maintain or increase power generation capacity – the much talked-about capacity mechanisms. Or, we explicitly re-regulate power generation. In terms of the power sector, 2020 is not very far away, but it is likely that, under the present rules, capacity shortages will develop well before that date. However, to expect a return to full regulation after 25 years of liberalization in the next six years also seems unlikely.

The most likely scenario is one of ‘muddling through’. The growth of non-dispatchable renewables will continue, but at a declining rate. Mechanisms to ensure that sufficient capacity is available, such as capacity auctions, payments or markets will be adopted, although perhaps not everywhere.

Europe is a patchwork of countries with different power needs, objectives and starting points – each determined to maintain and optimise its position. In spite of efforts by the EU and others, there will probably be a patchwork of solutions. It may ultimately end in full re-regulation – perhaps with some competitive bidding elements – but probably not as early as 2020. This is intellectually unsatisfying and possibly inefficient, but in the meantime it will provide opportunities for many very different players.

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